The S&P 500 touched a new record on Thursday, joining the Dow Jones Industrial Average in wiping out a two-month swoon amid strong profits and year-end optimism.
The S&P 500 was last up 0.2% and late in the session touched a new all-time high of 4,546.34. The Nasdaq Composite rose 0.6%. The Dow Jones Industrial average shed about 47 points, dragged down by a 9% loss in IBM.
Tesla jumped 3% following strong earnings from the electric vehicle maker. The S&P 500 has mounted a comeback this month as booming profit reports trumped worries about inflation and a potential end to Federal Reserve bond buying.
Jim Paulsen of the Leuthold Group noted that correlation between the inflation rate and profit margins has been positive for the past 20 years.
“Investors are understandably concerned about reports that inflation pressures are eroding profit margins and what that may mean for the stock market,” he said in a note Thursday. However, “elevated inflation appears to bolster S&P 500 EPS on the whole.”
Corporate America has so far had a solid performance in the third quarter, even as inflation proves to be persistent. Of the 101 S&P 500 companies that have reported through Wednesday, 84% topped analysts’ earnings estimates according to Refinitiv.
Tesla shares gained 3% after the electric-car maker posted record earnings and revenue in the third quarter that beat expectations.
American Airlines added 1.6% after it posted a profit due to federal aid for the third quarter.
IBM shares lost more than 8% following a revenue miss in the third quarter. Its top two business segments — global services and the Cloud & Cognitive Software business — fell short of estimates. Meanwhile, HP jumped 7% on strong earnings and raised guidance for 2022.
Shares of WeWork jumped 11% in their trading debut on Thursday. The office startup went public through a special purpose acquisition company more than two years after its failed IPO.
Investors have been monitoring the third-quarter earnings season to assess profit growth as well as signs of cost pressures and supply-chain disruptions for the rest of the year.
“There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on,” Jim Reid, head of thematic research at Deutsche Bank, said in a note.
Liz Young, chief investment strategist at SoFi, said an end-of-year rally is possible but may require that earnings come in solidly and positively across the board.
“We’re in this precipice of handing the baton from policy back to company fundamentals,” she told CNBC’s “Squawk Box Thursday. “That’s going to be a little bit bumpy but it’s like watching a baby try to walk. If we hold it up the whole time we’re going to delay its progress, so you have to let the market fall down and know it’s not going to get hurt, and have it find its own balance.”
Investors are also keeping a close eye on unemployment data for clues to when the Federal Reserve could start to normalize its monetary policy. Jobless claims fell to a new pandemic low of 290,000 last week, the Labor Department reported Thursday. That’s down from the previous week by 6,000 and lower than the 300,000 estimated by economists surveyed by Dow Jones.